Cryptoassets: Pulled Into The IME
Cryptoassets are continuing to evolve and their tax treatment is an issue that has been on the government radar for some time. So it’s little surprise that the government has now confirmed, following a consultation, that certain types of cryptoassets will be included within the specified investment transactions (the Investment Transactions List (ITL)) for the purposes of the statutory investment management exemption (IME).
The move forms part of the state’s drive to establish clear tax and regulatory treatment of cryptoassets in the UK; as well as encouraging new cryptoasset investment management businesses to base themselves in the UK where there has been relative uncertainty.
The IME provides assurance to investment managers and investors that there will be no corporate tax to foreign corporate investors and no income tax for individuals where they meet the IME’s qualifying tests.
Plans to expand the ITL to include cryptoassets were first announced in April 2022; and the outcome of an HMRC-led consultation was published last December. Views were sought as to which types of cryptoassets should be included within the ITL and whether the change should also be extended to tax regimes for funds using the ITL.
The decision to include certain cryptoassets within the IME is also expected to provide certainty of tax treatment to UK investment managers and their non-UK resident investors who are looking to include cryptoassets within their portfolios. The government has decided, for now, against extending this change to the fund tax regimes which also use the ITL (to be kept under review).
Definition
The meaning of ‘cryptoassets’ is not yet legally defined but they include exchange tokens, utility tokens, security tokens and smart contracts, as well as non-fungible tokens (NFT). Having considered the responses to the consultation, HMRC said it is to adopt(for the purposes of the ITL) the definition of cryptoasset based on that of the Crypto-Asset Reporting Framework (despite a few respondents expressing concern that the CARF definition had not been finalised and could be made narrower).
In its current form, the CARF definition reads thus: “Cryptoassets refers to a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions.”
However, it’s important to note that ‘designated cryptoassets’ created or issued by the investment manager, non-UK resident fund or parties connected to them will be excluded from the ITL.
The changes were introduced on 20 December 2022 and applies to transactions entered into from tax year 2022-2023 onwards and accounting periods from and including 19 December 2022. Guidance has been incorporated into HMRC’s International Manual.
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